Navigating the Legal Cannabis Market

With current strong market expansion for hemp products and state-legalized marijuana, the Cannabis plant is the foundation for some of the fastest growing industry segments in the United States today. This is in spite of the fact that no commercial production of hemp is occurring in the United States and the Cannabis plant remains prohibited by federal statute.

It sounds like a complicated situation, especially for companies considering how they might engage in these rapidly growing industries. While it can be a confusing environment for retailers trying to understand the disparities between federal and state laws, as well as the varying laws from local and state-to-state governments, the range and legal marketing of products that can be derived from Cannabis will no doubt continue to expand.

Hemp vs. Marijuana
Retailers seeking to ensure that the products they sell are lawfully marketed under the complex legal status of the Cannabis plant should first understand the common usage of the many terms used to refer to this plant and its derivatives, as well as the primary substances that may be present in products manufactured from it.

“Cannabis” is used to refer to species of the plant Cannabis sativa, an annual flowering botanical that has been cultivated worldwide for medicinal, inebriant and industrial uses. Hemp and marijuana both come from the Cannabis spp. plant, but are derived from distinct cultivars or varieties, and are also distinguished by the substances present in the plant material and the products derived from various parts of the plant. Different cultivation practices are also employed to optimize the desirable characteristics of hemp and marijuana.

The term “marijuana” is generally used in reference to substances derived from the flowering tops and leaves of Cannabis spp. varieties that produce psychoactive effects or feelings of euphoria in humans following inhalation or ingestion. The plant varieties commonly known as marijuana contain significant levels of the compound tetrahydrocannabinol or THC. It is primarily the presence of THC that results in these cultivars being used for medicinal and inebriant purposes. Marijuana cultivars are encouraged to grow in a short, bushy fashion with many leaves and branches to optimize the number of flowers and buds produced.

The term “hemp” refers to varieties of the Cannabis spp. plant that have relatively low THC content. Hemp cultivars generally have a THC content of less than 1%, which is generally believed to be the threshold for the Cannabis plant to have drug use potential. Hemp is encouraged to grow as a tall stalk with few leaves and branches for the purpose of maximizing production of fiber and seeds. While small amounts of THC can be present in unprocessed hemp seed, modern seed washing techniques are now employed, which remove any residual THC from the seed hull.

Another constituent of the Cannabis plant that has recently garnered significant attention is cannabidiol, or CBD. This compound does not produce the psychoactive effects associated with THC. CBD extracts can be produced from Cannabis spp. cultivars that can be classified as hemp or marijuana and may contain variable levels of THC in addition to CBD. Eleven states have passed legislation that allow for access solely to Cannabis spp. extracts that contain high levels of CBD (and low levels of THC). These laws have been adopted in response to strong lobbying by families of children suffering from intractable epilepsy or other uncontrolled seizure disorders, for which CBD has been anecdotally reported to reduce symptoms in some children.

Legality of Domestic Hemp Production
Hemp was widely cultivated in the United States as a source of fiber for textiles and paper until the early 20th century. In the 1930s, states started to restrict access to the Cannabis spp. plant flowers and leaves due to their use as psychoactive substances. The 1937 Marihuana Tax Act defined hemp as a narcotic drug and instituted a registration and tax for farmers cultivating this crop for industrial purposes, effectively discouraging continued commercial production. Hemp cultivation briefly increased during World War II to supply military needs, but ceased by 1958 after which the U.S. Department of Agriculture has no recorded production.

The Controlled Substances Act of 1970 uses the same definition of “marihuana” as established in the 1937 Marihuana Tax Act. This statute does not distinguish between high- and low-THC cultivars of Cannabis spp. While the definition appears to exclude from statutory control certain derivatives of the plant that are associated with non-drug use hemp production—stalks, fiber, oil or cake—the Drug Enforcement Agency has not supported this interpretation.

Most recently, a federal definition for “industrial hemp” was established in the 2014 Farm Bill under Section 7606, titled “Legitimacy of Industrial Hemp Research.” Section 7606 defines industrial hemp as “the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.” This section authorizes state departments of agriculture and academic institutions to grow industrial hemp in pilot programs for research purposes, in states where industrial hemp farming has been legalized. By providing for U.S. cultivation of industrial hemp, albeit for research purposes, the Farm Bill may encourage a path forward for the legal domestic production of a crop that has been prohibited for over 50 years.

Following the 2014 Farm Bill authorization, a number of states such as Kentucky and Colorado have quickly initiated university-based pilot programs for the growing of industrial hemp. Although it once was a common crop in the United States, significant changes in agricultural practices have occurred since the historical production of industrial hemp, prompting research to determine optimal cultivation and harvest conditions using modern agricultural techniques.

While interest in the reintroduction of U.S. commercial production of hemp is growing, the United States will also need to provide the infrastructure for processing of industrial hemp. Assuming commercial production can be legally re-established, processing facilities having the capabilities to separate hemp fiber or press hemp seed oil may need to be developed. Due to the lengthy prohibition of hemp production, the United States has no approved pesticides for use on this crop, and the availability of other agricultural services such as crop insurance and farm loans are uncertain. All these factors place the United States at a market disadvantage to other countries such as Canada and China, where regulated industrial hemp industries have become well established.

Legality of Marijuana
As of the November 2014 elections, 23 states and the District of Columbia have legalized use of the Cannabis plant for medical and/or adult personal use, while the federal Controlled Substances Act maintains a Schedule I prohibition of cannabis. With respect to enforcement of the federal Controlled Substances Act, in 2009 the Obama administration requested federal prosecutors to not pursue prosecution of individuals distributing marijuana when performed in accordance with applicable state medical marijuana laws. Following the legalization of adult personal use of marijuana in Colorado and Washington, the Department of Justice issued their own updated enforcement policy in August 2013. This policy outlined expectations for the establishment of strong regulatory and enforcement programs in states where marijuana has been legalized, and reserved the right to take federal enforcement action at any time.

Another significant federal action was included in the omnibus budget bill passed by Congress in December 2014. The spending bill contains an amendment restricting the Department of Justice from using federal funds for the prosecution of individuals in medical marijuana states, leaving enforcement to state and local jurisdictions. Ironically, the spending measure also contains provisions intended to block the legalization of adult use of marijuana in the District of Columbia, which was passed by D.C. residents in November 2014.

In states where access to marijuana has been legalized for medical or adult personal use, retailers entering this industry must become familiar with the specific laws and regulations for marketing these products. Not all state medical marijuana programs currently allow for retail sales of these products. States that have legalized dispensaries or other retail outlets generally have very rigorous application, registration, and licensing requirements for such operations. Most have limitations on the number of and the physical locations of marijuana businesses, to ensure that they are located a minimum distance away from schools and other facilities frequented by children. State regulations may specify other limitations, such as the types of marijuana products that can be made available. Local jurisdictions may place additional restrictions on dispensaries and retail outlets.

Hemp in Supplements and Health Foods
Domestic commercial production of hemp has been dormant since the late 1950s, but it is legal to import industrial hemp in both raw and processed forms into the United States. Internationally, Canada and many countries in Asia, Europe and South America have legalized industrial hemp production and provide exports of industrial hemp to the United States. China is the largest U.S. supplier of hemp fiber and textiles, while Canada and some European countries are the largest U.S. suppliers of hemp seed and oil cake. Companies importing hemp are marketing a wide variety of products, some of which are intended for sale in the natural products industry as foods and supplements.

The part of the hemp plant with the greatest nutritional importance is the seed. Hemp seeds contain oil that is of high nutritional value due to its ratio of the essential fatty acids linoleic acid (18:2 omega-6) and alpha-linolenic acid (18:3 omega-3), which corresponds to the ratio that is needed by the human body (1). The seeds are also a rich source of complete protein, meaning that they contain all of the essential amino acids needed by the human body for protein metabolism. A wide variety of supplement and food products can be derived from the seeds and are commercially available in the United States.

Hemp seed oil is the most commonly marketed hemp supplement product found in health food stores and other retail outlets. It has a strong nutty flavor and can be taken in capsule form or incorporated into other foods and condiments. Retailers and consumers should understand the difference between hemp seed oil and supplement products labeled as containing CBD in what may be further described as hemp oil. Hemp products labeled as containing CBD are not produced exclusively from the hemp seed, as the seed contains no CBD.

Retailers in the natural products industry can proactively take steps to ensure that any hemp-derived products or supplements sold in their stores are responsibly marketed and are appropriate for unrestricted purchase by consumers. As with any other supplement product, hemp products marketed as a dietary supplement, including those containing CBD, must comply with the requirements of the Dietary Supplement Health and Education Act (DSHEA). Retailers can look for the identification of the part of the Cannabis spp. plant used in the manufacturing of the product on the labeling. Any hemp-derived product marketed as a dietary supplement is required to identify the part(s) of the plant used in the ingredient list. Retailers that may have concerns about any product intended for human consumption potentially containing THC above the limit defined for industrial hemp should request the product manufacturer provide documentation confirming its legal status.

What’s Coming?
The next few years are anticipated to include continued high levels of legislative activity regarding the Cannabis spp. plant, primarily related to state medical marijuana and adult personal use programs. More sweeping changes at the federal level pertaining to the scheduling of cannabis in the Controlled Substances Act or the legalization of industrial hemp production are possible as well, although such actions are unlikely under the current administration. Retailers can best position themselves to take advantage of the changing legal landscape for Cannabis spp. plant products, and the potential resulting business opportunities, by paying close attention to emerging state and federal legislation and the myriad regulations that impact access to this botanical and its many useful derivatives. WF

Jane Wilson is director of program development for the American Herbal Products Association (AHPA), the voice of the herbal products industry representing over 350 companies in the U.S. as well as internationally that grow, process, manufacture, and market herbs and herbal products. She provides staff support to AHPA’s Cannabis Committee. Wilson can be contacted at jwilson@ahpa.org.

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